Normal sale vs job work

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Sandeep Goel

Partner

55 Points Joined December 2018

X is manufacturing candies/ toffees in the normal course of business under HSN code 17 which are billed @ 12%. X now wants to manufacture for a marketing co_Y which is providing only the packing material in his name where it is printed as Mfd by X and Mktd by Y.

Pls suggest if X will invoice in the normal course or as job work. If it has to be billed as job work then at what value since the manufacturer is putting all the ingredients himself for production except for packing material. Hence rate charged include the ingredients cost, manufacturing exp and margin. Also what GST rate will be applicable if job work?

Replies (8)

Prajwal Shetty

Artical Assistent

237 Points Joined July 2016

Respected
Since from your question it seems that X is charging cost of production plus the margin of X on goods supplied to Y.
If it is assumed that once the goods are sold to Y, then X has nothing to do with that goods. Then in this case it is a normal sales and not job work.

Sandeep Goel

Partner

55 Points Joined December 2018

Yes, Goods once sold will belong to Y. Only issue is the packing material which is supplied by Y as the candies are to be packed in the name of Y. Here, the packing material also states that the product is manufactured by X and marketed by Y. So, clarification is needed whether this transaction will be categorized as job work or not?

Prajwal Shetty

Artical Assistent

237 Points Joined July 2016

If X is charging cost of production plus the margin on goods supplied to Y, and Y is packing the goods supplied by X in it's name and then supplying it to other person, then it is normal sales.

Sandeep Goel

Partner

55 Points Joined December 2018

Packing is done by X in the name of Y as the packing material is provided by Y to X. Candies are packed and the final product only is billed by X to Y.

Prajwal Shetty

Artical Assistent

237 Points Joined July 2016

Till will be normal sales weather Y charges for packing materials supplied to X or not.

Sandeep Goel

Partner

55 Points Joined December 2018

Logically, I agree but do we have any references/ write up/ case study to support this. Pls help. It would be helpful to argue tax authorities later.

Prajwal Shetty

Artical Assistent

237 Points Joined July 2016

You can argue that it is not job work because the goods send to Y by X are not going to be returned by Y to X. and X has charged Gst treating it has normal sales.

and job work is benefit given by department in which the supplier can claim ITC on goods sent to job worker without charging Gst, subject to some conditions.

in your case you are charging and paying Gst to department and not deferring the payment of Gst, the department will not question you.